Diana Clement: Ten tips to keep your credit card under control

If you have a credit card for "emergencies", ask yourself how often those emergencies come around? Photo / 123RF

Credit cards are the scourge of many Kiwis' finances. They do have uses, but they're a bit like the booze. Not everyone behaves sensibly with them and many lurch from one month to the next, a hair's breadth from going under.

We spend $3 billion a month on our credit cards and more than 60 per cent of that money will incur interest because it won't be paid off before the interest free days run out.

At an individual level, Mt Debt is causing huge pain. Running a balance month after month is one of the worst drains on finances known to man. The irony is that it's the people least able to afford it who get stung with nearly 20 per cent interest on top of everything they buy.

Credit card debt is stressful, can ruin relationships and gets in the way of doing what you really want in life. So here's some tips to get control over the little plastic card:

1. Control the "buy me" voice in your head.
If you can walk past that shop and not buy something you're outsmarting your own brain, which is wired to buy. Think twice or three times about everything you buy. Try repeating a mantra to stop you in your tracks such as: "Do I really need it?", "Will it put me in debt?" Or whatever is relevant to your situation.

2. Go low rate.
If you are running a balance then the interest rate you pay matters. A Gem Visa, for example, charges 24.95 per cent interest per annum, while the Co-operative Bank's Fair Rate card charges 12.95 per cent interest on cash advance and purchases.

3. Pay nothing.
Balance transfers can give you breathing space. By transferring the balance to another bank you might pay low or no interest for six to 12 months. BNZ is offering 12 months at zero per cent on its Low Rate Mastercard with new purchases charged at 13.45 per cent, but a $60 annual fee. This gives you serious breathing space to pay down the debt. Check out the rates on sites such as Interest.co.nz, Pocketwise.co.nz or Canstar.co.nz. But remember if you don't pay the balance off before getting more credit then you're fooling yourself.

4. Avoid cash advances.
You pay 22.95 per cent on most cash advances through banks. That's a very expensive way to get money.

5. Watch those fees.
The Banking Ombudsman hears from customers who get caught with unexpected fees, particularly around cash advances or overseas services.

6. Move the payment dates.
If your card payments are due the week before pay day you might not have money to pay them. David Scognamiglio, chief executive at Credit Simple recommends aligning your card payment dates with your wages or salary. "It's a great hack for people who find it tricky to manage their money and keep their cash flow under control."

7. Limit your limit.
Banks like to increase them to encourage us to spend more, but you should reduce yours to the bare minimum.

8. Always pay down in full.
Jose George, general manager of Canstar New Zealand, always pays his bill in full by payment date. If you can't do that, do a bit of serious naval gazing. You shouldn't be collecting rewards, points, air miles or cash back if you're paying any interest. The interest bill adds up to more than the points.

9. Go debit.
One of the excuses many people have for owning credit cards is online purchasing. A Visa or Mastercard debit card does exactly the same job. What's more, you can now pay online with Eftpos at a growing number of e-retailers, Ping (on Trade Me) and POLi at sites such as AirNewZealand.co.nz and TheWarehouse.co.nz, and the NZ Transport Agency.

10. Have a plasectomy.
The ultimate antidote to credit card debt is to do plastic surgery on your credit cards. Cut them up, shred them, bury them, freeze them in water or anything that stops you actually using them. Promise yourself not to spend on them for a week or a month. Or leave them at home when you go to work. And don't learn your card number off by heart or spending online becomes too easy.

If you think you have a credit card just for "emergencies", ask yourself how often those emergencies come around.

Is Christmas an emergency? Is your summer holiday an emergency? Are new shoes an emergency?

Next thing you know you're using it for everyday spending.

Don't believe all the advertising that tells you a credit card can make your dreams a reality.